Securities firms can afford to be generous More than 300 employees are in line for bonuses of at least $4 million

December 01, 1996|By BLOOMBERG BUSINESS NEWS

NEW YORK -- More than 300 people on Wall Street will receive year-end bonuses of at least $4 million as the industry's profits surge to record levels, according to executive recruiters and investment bankers.

Leading partners at Goldman, Sachs & Co., the biggest and richest investment banking partnership, will get $7 million to $8 million each, according to people at the firm.

Top bankers, traders and salespeople at firms such as Morgan Stanley & Co., Merrill Lynch & Co. and Donaldson, Lufkin & Jenrette Inc. will receive $5 million or more.

Compensation is among the most important topics on Wall Street now because executives are meeting to decide how much to pay their employees.

Expectations are running high, as the securities industry is on track to earn a record $12 billion in pre-tax profits this year.

Most of employees' pay on Wall Street comes in annual bonuses many times bigger than their salaries.

"This has been a good year for the Street, so we should be able to compensate people fairly generously," said David Komansky, Merrill's president.

At Merrill and elsewhere, pay increases of up to 30 percent more than last year's "wouldn't surprise me," he said.

Securities firms can afford to be generous.

Merrill, Goldman, and Morgan Stanley each will earn more than $1 billion this year, while DLJ earned more in the first nine months of this year than in all of 1993, its previous record year.

That's great news for the people who run those businesses; it means that Wall Street's wealth "can be more broadly dispensed," said Gary Goldstein, president of the Whitney Group, a New York-based executive recruiter.

"There are a lot more people who will earn $4 million to $5 million or more this year than ever before."

Senior bankers and traders aren't the only ones who'll be well paid.

Midlevel employees at the vice president and senior vice president level can expect between $500,000 and $1 million this year, and even junior bankers a couple of years out of graduate business school will make about $250,000.

By contrast, the average family income in the United States was $51,353 last year, according to the U.S. Census Bureau.

The bonus dollars haven't always been so widely shared.

In Wall Street's previous record year, 1993, fixed-income traders and salespeople made the most money, as the lowest interest rates in a generation fueled a surge in the bond market.

Back in the go-go 1980s, merger bankers and junk bond traders and underwriters led the way.

To be sure, employees at securities firms are sacrificing a lot of time with friends and family to make that money.

"We like our work and we think we are well compensated, but I think people are working as hard as they have ever worked on the advisory side of the business," said Marc Granetz, a managing director in CS First Boston's mergers and acquisitions department.

The workday for junior bankers often runs from 7 a.m. to 11 p.m., six or seven days a week, Granetz said.

Senior bankers work fewer hours but their travel schedules are tough.

Still, many bankers and traders will be disappointed.

That's because some of their peers at the investment banking subsidiaries of Deutsche Bank AG, Union Bank of Switzerland and Swiss Bank Corp. will receive even bigger year-end payments.

These banks are paying a premium to woo talent that will help them build up their securities business in the United States.

"The expectations on Wall Street this year for bonuses are enormous," said Scott Page, president of executive recruiter Solomon-Page Group in New York.

"Reality may not meet expectations -- you can't take care of everybody."

At Lehman Brothers Inc., which was skimpy with pay last year, some bankers are looking for their bonuses to double, a person at the firm said.

One way for Wall Street firms to please their employees while conserving cash is by handing out more of the bonuses in stock.

Firms such as Merrill, Lehman and DLJ have taken that approach over the past couple of years.

As much as 40 percent of senior bankers' compensation at some firms will come in stock this year, said Jeff Bell, an executive recruiter at Russell Reynolds Associates Inc. in New York.